Millions in UK are vastly overcharged for insurance, regulator finds

Around 6 million policyholders pay too much, costing them an extra £200 per person per year on average

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Millions of people are overcharged for their home and car insurance, with companies raising premiums mainly for long-standing customers, a financial watchdog has found.

Policies are often sold at a discount to new customers and premiums are increased when customers renew, the Financial Conduct Authority (FCA) said on Friday. Last year, around 6 million policyholders paid too much, costing them an extra £200 per person, per year, on average, according to the FCA’s interim findings on insurers, brokers and price comparison websites.

The policyholders could save that amount if they paid the average premium for their risk rather than the inflated premiums they were charged.

“This market is not working well for all consumers,” said Christopher Woolard, executive director of strategy and competition at the regulator.

“While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around 6 million consumers.”

One in three of those people are defined as vulnerable in some way – for example, because they are on lower incomes, are going through bereavement or have a health condition impairing their ability to carry out day-to-day tasks.

Many consumers who switch insurers or negotiate their premium can get a good deal, the watchdog noted. However, a significant minority of people renew their policies automatically without looking into alternatives: 12 per cent of people who have home insurance do not do any research before renewing, while for motor insurance the share stands at 8 per cent. The numbers are much worse for vulnerable customers.

But firms often create barriers to switching by, for example, making it more difficult to cancel auto-renewal than to opt into it.

Although long-standing customers pay more on average, even some people who switch pay unnecessarily high prices, the FCA said.

The regulator is considering a number of measures to improve the functioning of the insurance market. They include banning or restricting practices such as raising prices for consumers who renew year on year or requiring firms to automatically move consumers to cheaper equivalent deals.

The FCA plans to publish a final report on home and motor insurance early next year.